Wrigley revises lineup of VPs

Another exec exits, 3 promotions follow

The revolving door is turning at the Wm. Wrigley Jr. Co. as the founder's great-grandson William Wrigley Jr. works to right a troubled U.S. operation.

Earlier this week, the company announced a more than $750,000 severance agreement with Darrell Splithoff, senior vice president of the worldwide supply chain and the company's No. 5-ranked officer.

His departure comes a little more than a month after the company's No. 2 executive hit the turnstile, and people close to the company say the revolving door is likely to continue spinning.

The announcement of Splithoff's severance package came on the heels of a downgrade of Wrigley's stock rating by a team of Credit Suisse analysts led by David Nelson, a leading food industry researcher.

The company's stock on Thursday hit a 52-week low of $43.08, down 22 percent from a year ago when the stock closed at $55.44 on a split-adjusted basis. It bounced back slightly Thursday to close at $43.47, up 17 cents, on the New York Stock Exchange.

Wrigley this week announced the promotions of three people to help manage the firm's operations. John Adams, the former vice president of international manufacturing, saw his portfolio widened to include U.S. manufacturing. Pat Mitchell, vice president of global procurement, was named vice president and chief procurement officer. Donagh Herlihy, the company's chief information officer, was named vice president of people, learning and development.

The departure of Splithoff and Ronald Waters, former chief operating officer, is being tied directly to the company's failure to successfully integrate the acquisition of the Altoids and LifeSavers brands purchased last year for $1.46 billion.

"Both he [Darrell] and Ron are getting blamed for not doing the due diligence on Altoids. They backed the acquisition," said one former company employee who has maintained his ties with Wrigley. "They saw them as good old stable brands that could be integrated easily into Wrigley's distribution system," he said.

Chris Perille, a spokesman for the Chicago-based gummaker, denied Waters' and Splithoff's departures were connected with Altoids.

"All we have is Ron retiring and Darrell resigning. There is no blame being assigned," he said, adding there likely will be "some continuing shifting."

But integration of the new brands did not come easily as many retail outlets initially balked at adding the Altoids and Lifesavers lines to their product mix. As a result, Nelson's research team believes the Altoids problems are deeper than Wrigley is letting on.

"The impact of these problems on the company's results along with the departure of two top management team members suggests that these problems will not be easy to solve," the team said. "We now believe that there are more fundamental problems at hand here."

Mitch Corwin, an analyst with Morningstar Inc., agreed.

"They botched the acquisition. But that doesn't mean the acquisition ultimately won't prove positive for them," he said. "Hopefully, it will be a learning experience."

The full impact of the efforts to revive the Kraft brands are expected to be detailed on Tuesday when Wrigley reports its second-quarter results.

Analysts surveyed by First Call, an investment research firm, say they expect Wrigley to report earnings of 56 cents per share, down 2 cents from a year ago. But the estimates range from a low of 47 cents per share to a high of 61 cents per share. First-quarter earnings, which showed the depth of the Altoids problems, came in at 40 cents per share, down from 46 cents a year ago.

But other problems are on the horizon.

Research efforts appear to be lagging as evidenced by London-based Cadbury Schweppes PLC regularly beating Wrigley to market with a new product. Cadbury's longer-lasting flavor gum, Stride, was the talk of the National Confectioners Association recent All Candy Expo. Wrigley has now rushed a longer-lasting Juicy Fruit product to market to compete.

Nelson's research team said Wrigley doesn't appear to be getting much payoff for the money it has invested in research, such as the firm's new $45 million research and development facility on Chicago's Goose Island.

"Innovation was working for a while, but it has been lackluster lately with eight new products launched in the U.S. only generating 1 percent organic growth in quarter one," the team said. "We have now heard multiple sources inside and outside the company question the quality of leadership within R&D and the quality of innovation."

Perille denied there are problems within the department and said there are no plans to replace the leadership of the R&D center.

He noted that Nelson is the only analyst to question Wrigley's plans. Nelson, however, also was the only analyst who virtually demanded the ouster of Kraft CEO Roger Deromedi earlier this year, when he called for a breakup of the nation's largest food company. Deromedi was replaced as CEO last month.

Corwin said while Wrigley has many problems, none runs as deep as those at Kraft.

"They have a lot of work to do but they are working from a position of strength. You just cannot lose sight that Wrigley has 60 percent market share in chewing gum in this country," Corwin said.